That confusion, and the fact that almost no one believes that any company will last forever, mean that perpetual bonds are almost unknown now in the commercial world.
Well, we do have something very close, preference shares. Yes, they’re not the same but still, VCs use them all the time.
They have, however, been issued by governments. The most famous, at least in the case of the United Kingdom, is the 3.5% war bond issued in 1915, which was always problematic. Although this debt was issued as a perpetual, in practice it was redeemed in 2015 at the whim of the UK government.
Consols were first issued in 1751, they were the usual form of government bond too. The 3.5% war loan was in 1914, it was 4.5% on issuance in 1915. It was later changes which dropped the interest rate back down again.
And then this is gorgeous:
But third, and perhaps most importantly, the change in nature of the market for government securities makes perpetual bonds a very attractive proposition for government at present. If it is known, and many governments do have this understanding, that a government will be repurchasing some or all of the bonds that they issue through a quantitative easing programme, then to have perpetual bonds in issue makes their central banking operations significantly easier to manage.
We should issue perpetuals because it makes reversing QE easier. This from the man who has spent a decade telling us that no one will ever reverse QE therefore ………
Oh, and one more thing:
The first, and perhaps most obvious of these, is that current interest rates throughout most major economies are at record lows, and after adjusting for inflation usually represent negative return upon any bond that is currently issued. This, it has to be stressed, has not prevented such issues: the fact that governments alone can issue bonds that are guaranteed not to fail so long as the government in question has its own central-bank creates an appeal to the investors seeking security that very few other investments or deposit-taking mechanisms can supply. The demand for bonds is high when all else looks like it could fail. We are living in such times. That means a government that knows it is likely to borrow in perpetuity(and that is true of almost every government on earth now) can now lock into these low rates knowing that they will, because of the impact inflation, almost certainly also diminish over time.
What interest rate will the government have to pay on a perpetuity? Given that all those who might buy them also know about that inflation trick?